Long Term Care Insurance

What Is Long Term Care Insurance?

Long-term care insurance (LTCI) is an insurance product that was developed 40 + years ago when we only had skilled nursing homes for people who needed long-term care. Monthly costs back then were probably a couple thousand dollars a month. Today it is around $12,000 a month and wiping people’s finances out, so they must apply for Medicaid. LTCI was designed to help people pay for those care costs. Often some of these old policies do not cover all the new types of long-term care which include: assisted living facilities, Alzheimer’s facilities, adult family homes, and in Washington State, the biggest of all is in-home care.

The cost of the premiums will depend on:

Your current age.

Your health today. If one company declined you, shop others as not all underwriting is the same.

How many dollars a day you want it to pay out. For example, if the long term care costs $300/day, you might decide you want the policy to pay out $200/day and you will pay $100/day out of your own pocket.

The inflation for the $200 a day to grow; 3% and 5% compounded is normal. This protection will allow you to keep up with increases for the cost of your care twenty years down the road when you might file a claim.

The amount of years once your claim begins that you want to be protected for, i.e., 2, 3, 4, 5 etc. and other riders.

Types of LTC Insurance Today

Traditional

Traditional LTCI plans have been around since the 1960’s when the idea of nursing homes first came into existence. Since then these plans have evolved to include the new levels of care that have been created since then, memory care, assisted living, in home care and so on, but they still work the same way. You buy into a plan and pay a monthly fee that can change over time. When you begin to need care you activate the LTCI policy and it pays out a certain amount per day to help you cover the costs of care. In Washington, there are roughly 20 insurance companies currently offering a variety of insurance products.

PROS:

Aside from being relatively easy to start, especially if you purchase the plan while young and healthy, there are a vast number of options and types of LTCI plans to fit almost any budget.

You can dissect these better yourself as the Sample Policy deals purely with LTC.

Partnership Protection; Only comes with Traditional and basically means if you use up all your benefits (example $300,000 of benefits, you can now apply for Medicaid and KEEP $300,000 of any assets you wish and get on Medicaid vs spending all your assets down to $2000 to get Medicaid.

Shared Benefits; If you and your spouse buy exact plans and one uses up all their benefits, they can then use their spouses too. Odds are slim you would both need LTC so extends the first spouses plan.

CONS:

Premiums are not guaranteed as there is no cash value to draw from as you are renting this coverage.

Plans purchased decades may not cover all the new types of care.

You pay all your life except a couple 10 year pay plans.

Hard to dissect to see if Adult family homes are covered.

Annuities

LTC Annuity plans are a fairly recent creation. Say you have $100,000 in a CD or other type of annuity earning a miserable 1-2% return. You can now choose to move it into an Annuity/LTC policy. You’ll still have the $100,000 as an investment now growing tax deferred to use if needed, but the insurance company may stack another $100,000 to $200,000 of LTCI benefit on top of it. So now your $100,000 investment is worth $300,000 if you need Long Term Care.

PROS:

Best part of these plans is that 100% of the annuity’s value, if used for LTC, is now TAX FREE. The IRS forgives the taxes that were in the annuity if used for care.

Cash value grows Tax Deferred.

All money used for LTC is now tax-free vs taxable.

The cash value is many time guaranteed.

If you want your money back you can get it and cancel.

CONS:

If you go on claim, you are using your $100,000 first and do not get into the insurance money until you use yours first.

The maybe 3$ Guaranteed cash value is really growing maybe a 1 % because the other 2% is used to purchase the $200,000 insurance benefit.

You need a decent sized CD or other type of annuity to get started.

The older you purchase the less insurance backing the plan will have.

Hard to dissect to see if Adult family homes are covered.

Hybrids

Hybrid Life Insurance Plans are another new product offered by insurance companies. Say you need Life Insurance and choose a $300,000 of death benefit as part of a Hybrid Plan, but at some age you end up in a Nursing Home at $9,000 a month for care. That $300,000 now converts into LTCI coverage while alive and it pays $300,000 / $9,000 a month which equals 3 years of care coverage. It pays for Life or Death. The main point is: someone gets money no matter what.

PROS:

These plans basically allow you to knock down two birds with 1 stone. Instead of having to get both Life Insurance AND an LTCI, unsure if you’ll ever need either, you get both.

You can single pay like the annuity and you are done, or other pay options.

Guaranteed premiums on many plans, so no price increases.

CONS:

The premiums or internal costs for these plans can run twice the costs of a Traditional LTCI.

I you use the benefits for LTCI there may be no death benefit now.

Hard to dissect to see if Adult family homes are covered.

The Word From Bruce

The greatest challenge for the consumer shopping and comparing LTC Insurance products is that it’s like comparing a Prius and a Ferrari. While technically both cars they each cost, perform, and are meant for very different people. Same is true of LTC Insurance policies. A lot of times the person selling a policy will make it sound like it’s the best thing in the world but that doesn’t mean it’s the best thing for you. Wih traditional long-term care insurance for example your prices are never guaranteed and prices are inevitably going to go up. The life long-term care Buzz words for the premiums are guaranteed. While yes the prices can be guaranteed obviously with the cost of long-term care going up and up where does that money come from? Out of the cash value of the policy so you don’t notice it going down in cash value. While the annuity long-term care can look good there are definitely negatives internally with it also so how do you know all the negatives versus the positives?

BOTTOM LINE: Understand What it is you NEED, before Shopping for what they HAVE